Wage Bargaining in KiwiSaver
Thanks for your question.
I am guessing, as this is the second question on the subject, there are more than a few employees or else employers who are confused about contributions obligations. You asked for legislative evidence that employers are required to chip in 2% of salary which obviously carries most weight if push came to shove and you ended up in a nasty debate over this one with an employee or employer.
I admit that when I went into the Act, it didn't exactly jump out. So I went to Inland Revenue and well, it didn't exactly jump out for them either at least not at first. That could have something to do with tinkering of the law. The legislative support for compulsory contributions on behalf of the employer (on top of salary) got written into the 2006 Act two years later, to reflect a election promise by National.
The specific section of the Act you're after is 101B. I've cut and paste it and put it at the bottom of this entry along with a link to the Act in full. Like most legal documents, the small print is a) hard to read and b) somewhat ambiguous. It will pay to crack out your bifocals and take time to read the relevant section and then phone an employment lawyer if there's some grey area.
While the Act (by virtue of the 2008 amendment) does indeed specify that employer contributions must be on top of salary there is also a bit (number 4 in 101B) that essentially throws that protection out of the window.
That part relates to "good faith bargaining" allowing employees and employers some room to negotiate on salary and contributions.
An IRD spokesman offered the following scenario:
"For example, an employee and employer could agree in advance to arrangements where a “superannuation allowance” can be taken in cash or treated as employer KiwiSaver contributions, and so if an employee should later join KiwiSaver the “superannuation allowance” would then be the employer’s compulsory KiwiSaver contribution.''
The key part to be aware of is the "good faith" principle which underscores these contractual negotiations under the referenced Section 4 of Employment Relations Act. Also the word ADVANCE. These discussions need to take place in advance of any concessions on KiwiSaver being meted out in pay and with both parties in agreement.
There are some exemptions where employers are not required to pay contributions and I outlined them in the previous Q&A. In brief here they are again:
- if they're already paying into another eligible registered superannuation scheme.
- if the KiwiSaver is under the age of 18
- if you are over 65 years of age (and you've been a member for more than five years)
- if the employee is not making contributions
You can read the details on Inland Revenue's website
In a nutshell, here's what the their website says on compulsory contributions in simple terms.
Your employer's compulsory contributions must be on top of your regular pay. This means that if you have agreed to a total remuneration package, the compulsory employer contributions must be paid on top of that package. Your take-home pay should not be reduced because your employer is making a compulsory contribution.
Through good faith bargaining, a salary package under an employment agreement can be negotiated whereby compulsory employer contributions can be offset against the employee's gross pay.
For more information please read the Department of Labour fact sheet.
Inland Revenue can only send your employer's compulsory contributions to your KiwiSaver provider if they've received the money from your employer.
Section 96 of the KiwiSaver Act 2006 governs payments from the Commissioner to the provider.
Compulsory contributions must be paid on top of gross salary or wages except to extent that parties otherwise agree after 13 December 2007
(1) The purpose of this section is to ensure that, for contractual arrangements of parties to an employment relationship (as defined in section 4(2) of the Employment Relations Act 2000), compulsory contributions are paid in addition to an employee’s gross salary or wages described in section 101D(3).
(2) The contractual arrangements of parties to an employment relationship must not have the effect of defeating the purpose of this section described in subsection (1).
(3) A contractual term or condition has no effect to the extent to which it is contrary to the purpose of this section described in subsection (1).
(4) However, on and after 13 December 2007, parties to an employment relationship are free to agree contractual terms and conditions that disregard the purpose of this section described in subsection (1), and, to the extent of such agreement, subsections (1) to (3) do not apply, unless, in respect of the employer and employee,—
(a) section 60(1)(a), (b) or (c) first applies on or after the day of assent for the Taxation (Urgent Measures and Annual Rates) Act 2008; and
(b) the contractual terms and conditions do not account for the amount of compulsory contributions the employer is required to pay.
(4A) In the circumstances described in subsection (4)(a) and (b), despite subsection (4),—
(a) compulsory contributions must be paid in addition to an employee’s gross salary or wages described in section 101D(3), in accordance with the purpose of this section described in subsection (1); and
(b) subsections (2) and (3) apply.
(5) For the avoidance of doubt,—
(a) the duty of good faith described in section 4 of the Employment Relations Act 2000 always applies when parties to an employment relationship bargain for terms and conditions relating to compulsory contributions and associated matters; and
(6) In this section, compulsory contributions means an amount of employer contributions equal to the amount of compulsory employer contributions that would be required by this subpart in the absence of section 101D(5)(a).
Section 101B: inserted, on 1 April 2008, by section 65 of the Taxation (KiwiSaver) Act 2007 (2007 No 110).
Section 101B(4): substituted, on 15 December 2008, by section 47 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section 101B(4A): inserted, on 15 December 2008, by section 47 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Section 101B(5): substituted, on 10 September 2008, by section 10 of the Employment Relations (Breaks, Infant Feeding, and Other Matters) Amendment Act 2008 (2008 No 58).
Section 101B(5)(b): repealed, on 16 December 2008, by section 10 of the Employment Relations Amendment Act 2008 (2008 No 106).